News
22 October 2008 www.the-actuary.org.uk
Industry
Asbestos and pollution developments
At the end of July, Royal & SunAlliance
Insurance Group (RSA) reached agreement
with General Motors Group (GM) over
coverage for the latter's asbestos and
pollution claims. The settlement amounts
were not made public, but the agreement
ends years of uncertainty for the insurer
following GM's 2005 lawsuit claiming
hundreds of millions of dollars said to be
covered under various liability policies
issued by RSA subsidiaries between 1954
and 1971. In particular, the settlement
brings finality to the substantial outflow
of legal costs incurred by RSA in defending
its position.
Contingent commissions
In late July, New York state officials
held legal hearings on remuneration for
insurance brokers. Mixed views were
expressed, with a Willis representative
insisting that contingent commissions
create conflicts of interest and should be
phased out, while other senior broking
figures, particularly those from smaller firms,
believed no such conflicts are created by this
form of remuneration. The hearings follow
the penalties imposed on several large
brokerage firms over the last few years for
their use of contingent commissions and the
subsequent amendment to the regulators'
stance, as reported in July.
Lloyd's
American International Group has
acquired the remaining 60% of the shares
of Ascot Underwriting Holdings, the
Lloyd's managing agency, which manages
syndicate 1414. The company thus
accelerated the purchase of the balance of
the agency's capital, which it already had
an option to do in 2012. The terms of the
purchase were not disclosed.
The credit rating agency Fitch has
confirmed its insurer financial strength
rating of A+ on the Lloyd's market. This
follows Lloyd's strong results in 2007, with
record profitability of �3.85bn. The rating
agency also predicted that the market's
strong results would continue in 2008,
although it expected some reduction in the
level of profit.
US sub-prime mortgage crisis
At the end of July, XL Capital Corp
(XL) completed a major commutation
with Security Capital Assurance (SCA),
the financial guarantee insurer. This is
understood to result in a reduction from
$65.7bn to $1.1bn in the maximum
exposure of XL to losses from SCA. XL
announced that the settlement would result
in a charge of between $1.4bn and $1.5bn in
their third quarter accounts. XL is funding
the commutation through a major issue of
shares, but considers the move necessary
to protect its security rating, which was
beginning to concern its customers.
Following losses of $18bn over the past
three quarters, blamed on credit default swaps
linked to the sub-prime mortgage market, US
insurer American International Group (AIG)
has been saved from bankruptcy by a US
Federal Reserve loan of $85bn in exchange
for an 80% public stake in the company. The
loan is over a 24-month term and the Federal
Reserve describes it as a `liquidity facility' to
enable AIG to `sell certain of its businesses
in an orderly manner, with the least possible
disruption to the overall economy'.
Citigroup analysis of Aviva and RSA
A Citigroup report has suggested that
both Aviva and RSA will need to rely
on significant releases from prior year
reserves to maintain a reasonable level
of profitability over the next couple of
years. This reflects the analysts' perception
that premium rates are weakening in the
main lines of UK business. Specifically,
they point out that, excluding the
June/July floods, RSA had an underlying
combined ratio of 103% for the pure year
2007, which was only made better by
significant prior year releases in the year.
The analysts estimate that, while strong,
the RSA reserves are not pitched at quite
the level they had been previously -- a
fairly common situation as a company
moves out of a hard market. The position
at Aviva is estimated to be similar in terms
of reserving and the need for releases,
but the report suggests that Aviva is less
well prepared for the next hardening of
the market than RSA, and is concerned
about its short-term future profitability,
particularly in 2009.
US workers compensation claims
National Council on Compensation
Insurance, Inc. (NCCI), the manager
of the largest database on US workers
compensation business, announced in
August that the claims frequency for
the class had reduced by 2.5% in 2007,
compared with 2006. This is the third
consecutive year of reducing claim
frequency. The average cost per claim,
however, showed a 4% increase, and
medical costs increased by 6%, albeit this
is the smallest increase in medical costs for
12 years.
From the world of general insurance
Regulatory developments
Towards the end of July, the UK
government published revised plans
for a new claims process from road
traffic accidents, in an attempt to
speed up payments for injured
parties and reduce unnecessary
administrative costs. The proposal
involves an increase in the scope of
so-called "fast-track" claims to include
all those up to �25,000. The new
government proposal has excluded
from the scheme injury claims arising
from employers' and public liability
policies and clinical negligence
claims and, following pressure from
(particularly) the "after the event
(ATE)" insurers, it has abandoned
suggestions that ATE premiums should
not be recoverable.
The UK Financial Services Authority
(FSA) has disclosed that only 13% of
assessed companies met the March
deadline for demonstrating that
they had management information
systems in place to test whether they
are treating customers fairly (TCF).
By the end of this year, they will
be required to show that they are
consistently observing TCF principles
� the FSA still believes that, with
greater focus on the issue, 80% of
sampled businesses could meet this
later deadline.
CraigYoung
The following items can be found on
the website:
n UK solicitors' professional
indemnity premium rates
n Hurricane forecasts 2008
n Large losses
Visit www.the-actuary.org.uk/
category/news/industry
More GI news

Page 1Page 2Page 3Page 4Page 5Page 6Page 7Page 8Page 9Page 10Page 11Page 12Page 13Page 14Page 15Page 16Page 17Page 18Page 19Page 20Page 21Page 22Page 23Page 24Page 25Page 26Page 27Page 28Page 29Page 30Page 31Page 32Page 33Page 34Page 35Page 36Page 37Page 38Page 39Page 40Page 41Page 42Page 43Page 44Page 45Page 46Page 47Page 48Page 49Page 50Page 51Page 52Page 53Page 54Page 55Page 56Page 57Page 58Page 59Page 60Page 61Page 62Page 63Page 64Page 65Page 66Page 67Page 68Page 69Page 70Page 71Page 72Page 73Page 74Page 75Page 76 Produced by PageSuite